01—Abstract
Summary
Summary of the 10-K filed February 25, 2016. Cited figures are marked; the original filing is the authoritative source.
CDW Corporation (CDW) reported net sales of $12.99 billiona for 2015, up 7.6% from $12.07 billion in 2014, and net income of $403.1 million, up from $244.9 million.
The increase reflected organic net sales growth of 4.7% and the consolidation of five months of Kelway's results following the August 1, 2015 acquisition of the remaining 65% of Kelway TopCo Limited. Gross profit rose to $2.12 billionb, with gross margin improving to 16.3% from 15.9%, and income from operations rose 10.3% to $742.0 million. Adjusted EBITDA was $1,018.5 million, up 12.3%, which the filing identifies as the primary measure used in the Term Loan's covenants.
Balance-sheet leverage remains significant. Total long-term debt was $3.26 billionc at year-end 2015, and the filing states a total net leverage ratio of 3.0. Cash fell to $37.6 million from $344.5 million, reflecting the Kelway acquisition, $241.3 million of share repurchases, and $52.9 million of dividends.
The company declared a quarterly dividend of $0.1075d per share, or $0.43 annualized, and the filing notes that future payments remain at board discretion and are constrained by debt covenants and a deferred cancellation of debt income tax position. The filing also discloses that the SEC is investigating CDW's vendor partner program incentives, and CDW reports it has produced documents and is cooperating.
Management does not believe a material loss beyond amounts already recognized is reasonably possible. Concentration is a notable risk: sales of products from Apple, Cisco, EMC, HP Inc., Hewlett Packard Enterprise, Lenovo and Microsoft together represented 56% of 2015 net sales, and the company has no long-term contracts with its vendor partners.
02—Key points
Key Highlights
- Net sales grew 7.6% to $12,988.7 million in 2015; organic net sales grew 4.7% excluding Kelway.
- Gross profit margin rose to 16.3% from 15.9%, and income from operations increased 10.3% to $742.0 million.
- Net income more than doubled from prior year to $403.1 million, or $2.35 diluted EPS, compared with $1.42 in 2014.
- Adjusted EBITDA was $1,018.5 million, up 12.3%, with the filing noting it is the primary covenant measure under the Term Loan.
- Total long-term debt was $3.26 billion at December 31, 2015, with a stated total net leverage ratio of 3.0.
- The company repurchased 6.3 million shares for $241.3 million under its $500 million program and continues a quarterly dividend of $0.1075 per share.
- An SEC investigation concerning vendor partner program incentives is ongoing; the company is cooperating and does not believe a material loss beyond recorded amounts is reasonably possible.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, CDW kept $0.03.
- Revenue$12.99B100.0%
- Cost of revenue−$10.87B83.7%
- Gross profit$2.12B16.3%
- Operating costs−$1.37B10.6%
- Operating income$742.0M5.7%
- Interest, other & tax−$338.9M2.6%
- Net income$403.1M3.1%
Where FY2015 revenue went
$12.99B- Cost of revenue: $10.87B, 84% of revenue
- Net income: $403.1M, 3.1% of revenue
- SG&A: $1.23B, 9.4% of revenue
- Other operating costs: $147.8M, 1.1% of revenue
- Interest, other & tax: $338.9M, 2.6% of revenue
Kept 3.1% as net incomeNet income $403.1M · 3.1%Other operating costs $147.8M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 25, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $12.99B$12.07B | +7.6% |
| Cost of Revenue | $10.87B$10.15B | +7.1% |
| Gross Profit | $2.12B$1.92B | +10.1% |
| SG&A Expenses | $1.23B$1.11B | +10.4% |
| Operating Income | $742.00M$673.00M | +10.3% |
| Net Income | $403.10M$244.90M | +64.6% |
| EPS (Basic) | $2.37$1.44 | +64.6% |
| EPS (Diluted) | $2.35$1.42 | +65.5% |
| Shares Outstanding (Basic) | 170.30M170.60M | −0.2% |
| Shares Outstanding (Diluted) | 171.80M172.80M | −0.6% |
05—Questions
Frequently Asked Questions
How much did CDW's revenue and profit grow in 2015?
Net sales rose $914.2 million, or 7.6%, to $12,988.7 million. Net income increased to $403.1 million from $244.9 million. Organic net sales, which excludes the Kelway acquisition, grew 4.7% to $12,638.0 million.
What drove the Kelway acquisition and how did it affect results?
On August 1, 2015, CDW bought the remaining 65% of Kelway TopCo Limited, a U.K.-based IT solutions provider, raising its stake from 35% to 100%. Kelway contributed $350.7 million of net sales and $8.6 million of net income for five months, and CDW recognized a $98.1 million gain on remeasuring its prior equity stake.
How leveraged is CDW, and how much liquidity does it have?
Total long-term debt was $3,259.7 million at year-end 2015, and the total net leverage ratio was 3.0. The company had $843.1 million available under its Revolving Loan after borrowing base limits, plus an additional £50.0 million ($73.7 million) under the Kelway Credit Facility. Cash and cash equivalents were $37.6 million.
What regulatory or concentration risks does the filing disclose?
The SEC requested documents on October 29, 2015 in an investigation of CDW's vendor partner program incentives, and CDW is cooperating. Sales of products from Apple, Cisco, EMC, HP Inc., Hewlett Packard Enterprise, Lenovo and Microsoft represented 56% of 2015 net sales, and the company has no long-term contracts with its vendor partners.
What are the dividend and capital return policies?
The board declared a quarterly dividend of $0.1075 per share on February 9, 2016, payable March 10, 2016 to holders of record on February 25, 2016. The filing states that future dividends remain at board discretion and may be limited by debt covenants, and that a deferred cancellation of debt income tax position could accelerate taxes if certain distributions are made.
06—Continue